SHANGHAI (Reuters) - China’s yuan bounced back from more than one-year lows against the U.S. dollar on Friday afternoon, after traders said major state banks sold dollars to prop up the fragile Chinese currency which has been roiled by a bitter Sino-U.S. trade conflict.

FILE PHOTO: Chinese 100 yuan banknotes are seen in this picture illustration taken July 11, 2013. REUTERS/Jason Lee/File Photo

The People’s Bank of China lowered its yuan midpoint for the seventh straight trading day to 6.7671 per dollar on Friday, 605 pips or 0.9 percent weaker than the previous fix of 6.7066.

The latest bout of yuan weakness, catalysed by concerns over the brewing China-U.S. trade war and a slowing Chinese economy, has seen the yuan shed 7.6 percent of its value against the dollar since the end of the first quarter of this year.

Friday’s fixing was the lowest since July 14, 2017, and represented the biggest one-day weakening in percentage terms since June 27, 2016.

The midpoint largely matched market forecasts, traders said, an indication that the authorities did not appear eager to hit the brakes on the yuan’s fall.

Later, though, four traders said they had seen major state-owned banks selling dollars and propping up the yuan.

“Big banks were offering dollar liquidity onshore and offshore, instead of only selling onshore as what they used to do. In this case, it could have better effect,” said one of the traders.

Another trader said he saw state banks selling dollars onshore at around 6.81 per dollar. The dollar selling had the effect of causing the yuan to pull back from its downhill dash.

Traders and economists say they suspect big state-owned banks sometimes buy or sell currency to influence the exchange rate as a form of intervention on behalf of the central bank.

Ken Cheung, senior Asian FX strategist at Mizuho Bank in Hong Kong, said investors were unsure of the future for the Chinese currency.

“Investors do not know how far the yuan could fall,” he said.

“(The authorities) might want to keep economic growth stable, and the direct impact of a weaker yuan could offset some negative impact from the trade war. But it will be hard to maintain confidence among foreign investors in purchasing yuan-denominated assets.”

Complicating matters, U.S. President Donald Trump said in an interview on CNBC television overnight that he was concerned that the Chinese currency was “dropping like a rock” and the strong U.S. dollar “puts us at a disadvantage.”

The spot yuan market shrugged off the comments, though, opening at 6.7950 per dollar on Friday before weakening past 6.8 per dollar to a low of 6.8128 at one point.

It recouped all the losses in the afternoon. As of 0600 GMT, the onshore spot yuan was trading at 6.7760, 36 pips firmer than the previous late session close.

The spot rate is currently allowed to trade within a range of 2 percent above or below the official fixing on any given day.

Offshore the yuan was trading 0.33 percent softer than the onshore spot at 6.7983 per dollar.

Some traders said dollar liquidity offered by the big state-owned banks in the morning halted the sharp decline in the yuan, causing it to reverse course.

Although many in the market don’t think the authorities have drawn a firm line in the sand for the depreciating Chinese currency, some said they were not overly bearish for now.

M.K. Tang, senior China economist at Goldman Sachs, said he was not too worried about the depreciation in the yuan as policymakers had better control over the outflow channels.

“The depreciation we saw, the reason that happened, is because policymakers have been comfortable with that. But if some day policymakers become uncomfortable because they think it’s too excessive then I think it’s quite likely that the authorities would have ways to stabilise the currency,” Tang said.

“So fundamentally speaking, we do think CNY is like many other exchange rates in the world, it can go up and down depending on the macro outlook and things like that.”